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2017 (7) TMI 692 - AT - Income TaxDisallowance u/s 40(a)(i) - various payments made by the assessee without deducting tax at source - Held that - Disallowance made of such expenditure for non deduction of tax cannot be sustained as there is no requirement for assessee to deduct tax at source while making such payments. As far as the payment made towards IVTC is concerned nothing has been brought to our notice to conclusively prove that such services are not in the nature of technical services. The assessee has also failed to prove that such income does not accrue or arise in India. Therefore we are not inclined to accept the arguments of the assessee that payment made are not in the nature of FTS hence no TDS was required. However we agree with the conclusion of the Commissioner (Appeals) that the disallowance under section 40(a)(i) as per Article 21(1) of the India Switzerland DTAA has to be restricted to the amount actually paid during the relevant previous year. It needs to be mentioned the assessee has made a without prejudice submission that as per Article 24(3) of the treaty disallowance on account of non deduction of tax should be restricted to 30% of the amount paid which is the quantum of disallowance applicable to domestic transactions as per section 40(a)(ia). It is submitted the amendment to section 40(a)(ia) restricting disallowance to 30% of the amount paid should be made applicable retrospectively since it is clarificatory in nature. We are afraid the contention of the assessee cannot be accepted. In our considered opinion the amendment to section 40(a)(ia) brought by Finance Act 2014 restricting the disallowance to 30% of the amount paid is substantive and not clarificatory hence will have no retrospective operation. Disallowing assessee s claim to be taxed at lower rate on the dividend distribution tax (DDT) - Held that - Keeping in perspective the provisions contained under section 115O vis a vis Article 10 of DTAA it needs to be examined whether the benefit of tax treaty can be extended to the DDT paid / payable by the assessee. We have noted the various proposition advanced by the assessee claiming benefit under Article 10 of India Switzerland DTAA as contained in the written notes are nothing but repetition of submissions made before the learned Commissioner (Appeals) on 20th February 2014 a copy of which is at Page 112 of the paper book. Though reading of Article 10 of India Switzerland DTAA prima facie gives an impression that it will only apply to non resident shareholder receiving the dividend however still it leaves a scope for examining the claim of the assessee that DDT being a tax on dividend Article 10 of the DTAA would be applicable even if such dividend is payable by the domestic company. In our view it will be too simplistic to reject the contention of the assessee on the plea that it will only apply where the non resident recipient of dividend incurs the liability in respect of dividend. In our considered opinion the learned Commissioner (Appeals) though was required to deal with all propositions advanced by the assessee he has not done so. Therefore we are inclined to restore the matter back to the file of the learned Commissioner (Appeals) for fresh consideration after reasonable opportunity of being heard to the assessee. Addition made on account of transfer pricing adjustment on licence fee - Held that - The learned Counsel appearing for both the parties have agreed before us that the issue stands covered by the decision of the Tribunal in assessee s own case for assessment year 2002 03 to 2007 08. As could be seen while deciding assessee s appeal for assessment year 2002 03 and 2003 04 and other related appeals the Tribunal deleted the transfer pricing adjustment by accepting the arm s length price of the license fee declared at 3%. The same view was again reiterated in A.Y. 2004 05 and 2005 06 and for assessment year 2006 07 and 2007 08. There being no material difference in facts brought to our notice by the learned Departmental Representative respectfully following the consistent view of the Tribunal we upheld the order of the learned Commissioner (Appeals) on this issue. Addition on account of delayed payment of PF/ESIC dues - Held that - Learned Counsels appearing for both the parties have agreed before us that the issue in dispute is covered in favour of the assessee by the decisions of the Tribunal. On a perusal of the order of the Tribunal for assessment year 2002 03 in assessee s own case as referred to above it is noticed that the Tribunal considering the fact that ESIC dues were paid before the due date of filing of return deleted the addition. The same view was again expressed by the Tribunal in assessee s own case for assessment year 2006 07. Since the learned Commissioner (Appeals) has deleted the addition following the consistent view of the Tribunal in assessee s own case we do not find any reason to interfere with the order of the learned Commissioner (Appeals).
Issues Involved:
1. Disallowance under section 40(a)(i) of the Income Tax Act, 1961 for various payments made by the assessee without deducting tax at source. 2. Taxability of Dividend Distribution Tax (DDT) at a lower rate. 3. Transfer pricing adjustment on license fee. 4. Deletion of addition made on account of late payment of PF/ESIC dues. Issue-wise Detailed Analysis: 1. Disallowance under section 40(a)(i) of the Income Tax Act, 1961: The assessee, a subsidiary of SGS, Switzerland, made payments to non-residents for inspection, verification, testing, and certification services (IVTC) without deducting tax at source. The Assessing Officer disallowed these payments under section 40(a)(i), considering them as fees for technical services (FTS) under section 9(1)(vii) of the Act and relevant tax treaties. The Commissioner (Appeals) upheld the disallowance but directed the Assessing Officer to restrict it to actual payments made during the relevant year. The Tribunal agreed with the Commissioner (Appeals) but noted that payments for WAN services and representation services were not taxable as per the AAR’s decision in SGS, Geneva’s case. Thus, disallowance for these payments was deleted. 2. Taxability of Dividend Distribution Tax (DDT) at a lower rate: The assessee claimed that DDT should be taxed at 10% as per Article 10 of the India-Switzerland DTAA, instead of the rate prescribed under section 115O of the Act. The Commissioner (Appeals) rejected this claim, stating that DDT is a tax on the company distributing the dividend, not on the shareholders. The Tribunal remanded the issue back to the Commissioner (Appeals) for fresh consideration, noting that the provisions of section 115O and Article 10 of the DTAA need to be examined in detail. 3. Transfer pricing adjustment on license fee: The assessee paid a technical service fee to its parent company in Switzerland, which was determined to be at arm's length in the transfer pricing study report. The Transfer Pricing Officer disagreed and proposed an adjustment. The Commissioner (Appeals) deleted the adjustment, following the Tribunal’s decisions in the assessee’s own case for previous years, which accepted the arm's length price of the license fee at 3%. The Tribunal upheld the Commissioner (Appeals)’s decision, noting consistency with previous rulings. 4. Deletion of addition made on account of late payment of PF/ESIC dues: The Assessing Officer disallowed an amount for delayed payment of PF/ESIC dues. The Commissioner (Appeals) deleted the addition, following the Tribunal’s decisions in the assessee’s own case for earlier years, which allowed such payments if made before the due date of filing the return. The Tribunal upheld this decision, noting the consistency with previous rulings. Conclusion: The assessee’s appeal was partly allowed, and the Revenue’s appeal was dismissed. The Tribunal provided detailed reasoning for each issue, ensuring consistency with previous rulings and relevant legal provisions.
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